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Buying A Houston Home? Avoid These 9 Kisses Of Death For Resale.

Buying A Houston Home? Avoid These 9 Kisses Of Death For Resale.

We analyzed 512,056 Houston home sales. Save money, headache & time by avoiding (the worst) mistakes.

While buying a home seems simple, there are vast pitfalls that can prevent you from not only living your best life but also impact your ability to prosper financially from your home purchase.

The real answer to “did you get a good deal?” only comes up when you go to resell.

It’s just like buying a stock: you don’t know how much money you make or lose until you sell it.

While the “average” Houston home has appreciated, it doesn’t mean that every area, neighborhood, or property has made money for its owner.

38% of homes bought & re-sold within 5 years, lost money for their owner on a net basis.

From studying 512,056 Houston home sales over two decades, we identified nine home characteristics that have a systematic and statistically significant NEGATIVE impact on a home’s Resale value.

We dubbed these “The Nine Kisses Of Death For Resale” – a.k.a what you should avoid to make a good Houston real estate investment.

Properties with any of these factors on average:

  • Re-sold for lower values than their peers.
  • Suffered from a smaller buyer pool (some buyers are unwilling to deal with any of these issues).
  • Stayed on the market longer.
  • Required a larger discount off list price to sell.
  • Created additional costs and/or hassles for residents.

(You can also read part #2 of this series: 5 Themes That Have Made For Successful Houston Real Estate Investments

"Paige Martin and the The Houston Properties Team are amazing. They are unbelievably candid. They talked us out of buying over two dozen houses based on issues that we didn't see (although the houses looked gorgeous). They always have your best interests at heart and they're experts in their craft. That's why our family has completed eight transactions with them over the past decade. Paige and the Houston Properties Team are experts that you can trust." – Debi G

Table of Contents

  1. Each Resale Issue Shaved Over 55% Off 10-Year Appreciation Rates
  2. Each Resale Issue Required A Greater Discount To Sell
  3. 41% Of Houston Homes Had One or More Resale Issues
  4. Resale Issue #1: Built By Reputation-Challenged Builders
  5. Resale Issue #2: In the Flood Plain / Flood Way
  6. Resale Issue #3: Neighborhood Flooding History / Reputation
  7. Resale Issue #4: Close To A Railroad Track
  8. Resale Issue #5: Close to a Major Freeway
  9. Resale Issue #6: On a Major Thoroughfare
  10. Resale Issue #7: Proximity to Commercial Buildings
  11. Resale Issue #8: Close to High Voltage Power Lines
  12. Resale Issue #9: Awkward / Choppy Floor Plans

Each Resale Issue Shaved Over 55% Off 10-Year Appreciation Rates

From our analysis, every resale issue reduced the average 10-year appreciation rate by 55% or more. In one case, the 10-year appreciation rate was negative.

From our study, the 10-year median sale price per square foot appreciation rate of the Close In Houston Neighborhoods was 20%.

If you bought an average Houston house, your $300,000 investment turned into $360,000 over a 10 year time period.

Since most people finance their home with a 20% down payment (using the values above) their $60,000 down payment turned into $120,000 of equity.

However, there were winners who generated over 500% (earned 5x their money) and losers who lost significant sums over this time period.

From our analysis, every resale issue reduced the average 10-year appreciation rate by 55% or more. In one case, the 10-year appreciation rate was negative.


Each Resale Issue Required A Greater Discount To Sell

Homes with any of the 9 Kisses of Death required a greater discount off their list price to sell.

Furthermore, homes with these resale issues were harder to sell. Specifically, buyers required a greater discount off list price to close.

As an example, if a home listed at $300,000 and sold at $300,000 there would be a 0% discount required to sell the home. (This would be very good for sellers and a sign of a hot market.)

From our analysis for Close In Houston, the median Houston home required a 2.1% discount off the list price to sell.

Homes that possessed any of the 9 Kisses of Death required a larger discount off the list price to sell, on average.

The main reason buyers required discounts is because each resale issue took a percent of the population out of the buyer pool.

As an anecdote, when we work with buyers in Houston’s inner loop, about 10-15% of the population will refuse to even consider any property where “they can hear a train.” In most cases, this concern stems from their children’s safety (more than noise pollution).

The house could have every factor that’s important to them (e.g. # beds, # baths, yard size, home size, the style they like, recent construction) and be priced less than their budget, but these buyers will not even consider these properties.

When there is reduced demand, prices fall.

41% Of Houston Homes Had One or More Resale Issues

Houston homebuyers who avoided properties with any of these resale issues nearly doubled Houston's median 10 year appreciation.

We wish these resale issues were isolated, but they’re not.

41% of homes had at least one major resale issue from Close in Houston (defined as Houston MLS areas 2,4,9,16,17,22,23,24).

Houston homebuyers who avoided properties with any of these resale issues nearly doubled Houston’s median 10-year appreciation.

The single best way to improve your expected long-term appreciation rate is to avoid properties that have one or more of these nine factors.

The main reasons that so many properties experience these resale issues is due to:

  • Houston’s recent flooding
  • Houston is gaining in population and has more traffic.
  • Houston has no property zoning (e.g. commercial establishments can be next to residential properties) in most neighborhoods.
  • Newer builders require inventory and have been acquiring lots in less desirable locations for recent construction.

Resale Issue #1: Built By Reputation-Challenged Builders

Contact us for builder recommendations (both builders we like and those we'd suggest you consider avoiding).

Impact: Depreciated 5.3% Over 10 Years
Requires: 5.6% Off List Price To Sell
Effects: 4% Of the Market

In our analysis, we defined “reputation challenged builders” as those with:

1) Three or more counts of litigation;
2) Bankruptcy, or
3) A featured “problem” story in the Houston Business Journal or Houston Chronicle.

Our research showed that homes built by reputation-challenged builders sold for the greatest average discount to list price.

To avoid these builders, your Realtor should check on the firm’s history, lawsuits, and look at their prior projects.

In Houston’s inner loop, one concerning trend is that builders will form an LLC, build a collection of homes, and run into issues. Then, the same principals will close that company and form another new one. For small builders, it’s important to not only run proper due diligence on the firm, but also the main individuals within the firm and understand their history.

Contact us for a list of builder recommendations (both builders we like and those we’d suggest you consider avoiding) to help you get started in choosing a home.

Resale Issue #2: In the Flood Plain / Flood Way

One in 5 new housing permits in Houston is in a Flood plain, even as new rainfall data show that current flood maps understate the risk posed by strengthening storms.

Impact: Depreciated 3.5% Over 10 Years
Requires: 5.2% Off List Price To Sell
Effects: 7% Of the Market

In “100-year floodplain” means any area of land that:
(A) is identified on the flood insurance rate map as a special flood hazard area, which is designated as Zone A, V, A99, AE, AO, AH, VE, or AR on the map;
(B) has a one percent annual chance of flooding, which is considered to be a high risk of flooding; and
(C) may include a regulatory floodway, flood pool, or reservoir.

“Floodway” means an area that is identified on the flood insurance rate map as a regulatory floodway, which includes the channel of a river or other watercourse and the adjacent land areas that must be reserved for the discharge of a base flood, also referred to as a 100-year flood, without cumulatively increasing the water surface elevaton more than a designated height.”

One in 5 newly approved housing permits in Houston is in a flood plain.

Development for 260 plats within Houston flood zones is currently underway. The city issued about 615 home construction permits in the 100-year floodplain, and over 600 permits in the 500-year floodplain. These areas have an annual water inundation percentage between 0.2 – 1%.

Before Harvey, Houston neighborhoods within the floodplain already have a 3.5% 10-year depreciation rate. There’s a high likelihood that resale numbers in these areas will continue to drop because:

  • Houston’s city council passed onerous regulations for any new permits in flood-prone areas (above).
  • Many Harvey-flooded-and-then-renovated homes are starting to hit the market, creating a material oversupply in areas that flooded.
  • The demand for construction is pushing labor and material costs. Many builders and major remodelers I’ve talked with expect their costs to increase by 15-25% in these areas.

This will make determining fair value difficult between non-flooded homes, flooded-and-well renovated houses, and flooded-and-poorly renovated properties. We see even seasoned real estate agents struggle with this.

Buyers will have the benefit of a larger inventory and competition when looking for the best deals (ie those built by reputable builders, properties with remediation certificates, and houses with strong warranties). Add to this the insurance costs and we can see why buyers typically have a stronger hand during negotiations.

For buyers interested in these areas, your Realtor should be able to steer you towards quality homes and good deals. For sellers, your agent should be able to advise you on how to properly (and fairly) price your home.

Resale Issue #3: Neighborhood Flooding History / Reputation

Even two years after Harvey, home values and land prices in flood prone areas are materially impacted from the floods. The value of homes located in these regions declined by 6% the last 3 years.

Impact: Only 2.3% Appreciation Over 10 Years
Requires: 4% Off List Price To Sell
Effects: 9% Of the Market

Located within a neighborhood with an an “Above Average” number of FEMA claims from two or more Houston flooding events since 2000. Read our full article How To Avoid Houston Homes With Flooding History for complete details.

To make sure you are buying a good home investment, make sure to check for flooding history. You can do so by:
1. Checking FEMA flood maps to see whether the neighborhood you’re considering is a flood-risk zone or not
2. Getting a survey
3. Consider getting a flood insurance policy
4. Researching water levels and flood stages in the bodies of water near the home
5. Asking your future neighbors about the neighborhood’s, or the home’s, flood history
6. Talking to an expert real estate broker

Resale Issue #4: Close To A Railroad Track

84% of the population report that they view a home purchase as a good financial investment, while 42% say that owning a home is better than owning stock. Contact us to protect your investment.

Impact: Appreciated only 4% Over 10 Years
Requires: 4.3% Off List Price To Sell
Effects: 3% Of the Market

For this analysis, we defined properties in this category as those located with 50 yards of a railroad track.

Homeowners in this location face these several common concerns:

1. Noise

2. Child Safety

Most railroad tracks in Houston are not fenced. Many children have put themselves in danger when playing on or near railroad tracks.

According to Operation Life Saver, “every three hours, a person or vehicle is hit by a train.” Living in close proximity to railroad tracks increases the likelihood of children walking or playing near tracks.

3. Pet Safety

Houston recently made the list of the top 25 most dog-friendly cities in the United States.

While there has been a lot of documented research on the number of people who are hit by trains, there is very little analysis on the number of “furry family members” who are hit and killed by trains each year.

Even without published studies, a number of families refuse to purchase a home too close to the railroad for the fear their pets will wonder onto the tracks at the wrong time.

4. Pollution / Health Risks

A study from California found people who live near railroad stations, especially those with high traffic volume, had higher risk for cancer due to exposure to diesel pollution from the trains.

An analysis completed by the Mayo Clinic found asthma to be 40 to 70% more prevalent in children who lived near a railroad intersection. The pollution caused by the diesel engines permeate the air around the tracks and the homes in the nearby area.

A separate University of Washington study also found residents who lived near rail lines faced increased exposure to harmful microscopic particles from diesel emissions.

Resale Issue #5: Close to a Major Freeway

Houston's freeway system includes 576 miles of freeways and expressways. The Bayou City averages 1.59 vehicles per household.

Impact: Appreciated only 6% Over 10 Years
Requires: 3.7% Off List Price To Sell
Effects: 4% Of the Market

Located within 50 yards of a US or Texas highway.

High-speed vehicular traffic is common in freeways. And just like properties near a railroad track, homes in this location have lower resale value and higher owner and tenant turnovers.

Some issues that come with homes along freeways include:

  1. Noise
    The most common factor is still noise. Homeowners will have to deal with the sound of traffic, cars honking, and engines whizzing throughout the day and night. This location will not appeal to those who prefer a peaceful and quiet environment.

  2. Safety Concerns
    Families may also skip homes close to a major freeway because of safety issues. Busy streets with cars running at high-speed can be dangerous to pets and children.

  3. Inconvenience
    While freeways make it easier for some people to go into the city, those who live along freeways experience the opposite. Parking and reversing a car out of a driveway can be a challenge during peak traffic hours.

Resale Issue #6: On a Major Thoroughfare

Traffic noise ranges from 70 to 80 decibels at a distance of 15 meters (50 feet) from the highway. 80 decibels is considered harmful to the human ear.

Impact: Appreciated only 6.5% Over 10 Years
Requires: 2.8% Off List Price To Sell
Effects: 8% Of the Market

Properties included in this analysis are those located on a major Houston street such as Kirby, Bissonnet, Buffalo Speedway, Memorial Dr., Voss, Woodway, TC Jester, Richmond, Washington Ave, Montrose Blvd, W. Gray, W Dallas, Shepherd, and Westheimer Rd.

Homebuyers can face the following challenges when living along a major thoroughfare:

  1. Noise
    The incessant honking during rush hour and the noise coming from thousands of cars driving per day can put off a homeowner who wants to enjoy peace and quiet especially at night. Car headlights can also shine through the windows of the house which can disturb homeowners trying to sleep at night.

  2. Traffic and Parking
    With the hundreds of cars passing by, going in and out of the driveway can be very challenging especially during rush-hour.

  3. Kids’ Enjoyment and Safety
    Kids playing on the front lawn or on the sidewalk can be more risky for homes on major streets. They probably won’t be able to play long enough on Westheimer Road before having to yell “car!”

  4. Privacy
    Issues on privacy can be a combination of the three items above. The foot and car traffic to deal with every day are just significantly greater than living in a home in a quiet street. Being on a major city street means you are somewhat “exposed.”

Resale Issue #7: Proximity to Commercial Buildings

A good Realtor can find a balance between having good accessibility while maintaining privacy. Contact us for a custom list of homes that fall into this category.

Impact: Appreciated only 8.9% Over 10 Years
Requires: 3.1% Off List Price To Sell
Effects: 6% Of the Market

Property located on a lot adjacent to a lot being used as a commercial property according to Google Maps.

Though living near restaurants, convenience stores, and gyms might increase your home’s value, having them right outside your doorstep bring some challenges too.

Some common issues of homes near commercial buildings are:

  1. Traffic Congestion
    Patrons of the businesses next door will contribute to traffic congestion, especially during peak business hours. Many cars would pass by the house round the clock. Homeowners will have a difficult time parking and going out of the driveway.

  2. Noise
    If the house backs up to a pub or restaurant, loud music and loud customers can be a problem especially at night. Loud diesel delivery trucks driving by and running their engines will also be a constant source of noise.

  3. Safety and Privacy
    Aside from noise, rowdy customers also bring safety concerns. Conflicts can happen anytime and the severity is unpredictable. These conflicts expose homeowners living nearby to dangers that may arise.

  4. Cleanliness
    Proper garbage disposal and management can also be a source of problem. Businesses such as restaurants and bars usually have dumpsters that smell of rotten food because of the amount of food waste they discard every day. Since the house is nearby, homeowners will have to deal with this smell until they collect the garbages the following day.

  5. Unpredictable future developments
    The property might sit across a peaceful coffee shop right now. But since this is a commercial property, future developments are out of your control. The building owner can turn it into a pub in a few years, and that’s when you will have to deal with the first four issues mentioned above.

Resale Issue #8: Close to High Voltage Power Lines

In some cases, proximity to power lines may lower a property’s value by as much as 30%. What may only start out as an inconvenience can be a big detriment in getting fair resale value later on.

Impact: Appreciated only 7% Over 10 Years
Requires: 2.3% Off List Price To Sell
Effects: 1% Of the Market

We define properties as close to high voltage power lines if they are within 50 yards of a power transmission station or high voltage transmission line.

Here are some concerns homebuyers have raised about properties near power lines:

  1. Health Concerns
    Power lines are often red flags prospective homebuyers look for when viewing a house for the first time. Many people believe that living near power lines – especially high voltage ones – can cause cancer because of the EMF (electromagnetic field) they emit. There were studies since the 1990s disproving the effects of low-frequency EMF to cancer. However, most prospective homebuyers are still averse to buying properties in this location.

  2. Issues on Comfort
    The buzzing noise from power lines also give residents a certain level of discomfort. Even without an actual hazard, disturbing sounds can put off homebuyers even while still viewing.

  3. Home Appearance
    Aside from safety concerns, power lines make houses look unattractive. Lower market prices are not always enough to compensate for the bad view brought about by power lines.

Resale Issue #9: Awkward / Choppy Floor Plans

Our analysis of 815,494 Houston home listings over the past decade tells us the 20 best home investments that increase property value. Having bad floorplans is definitely not one of them.

Disclaimer: The Houston MLS lets us track about 200 different property factors. Eight of the factors listed above come directly from the data. However, when we reviewed the analysis with our team (the #1 boutique real estate team in Houston with over $500 million of residential property sales) our top ranked Realtors unanimously mentioned a factor that they felt needed to be on the list but we didn’t have a statistically significant method to pull data from the last 20 years.

Home buyers might not know a bad floor plan on the first visit, but they will feel something is not right about the house.

Buyers will not resonate to a home with a bad floor plan when they first see it. It is often very difficult to correct a bad floor plan without having to spend a lot of money. The task will entail having to remove and move walls. And some walls you wish to relocate can even be load-bearing walls, which may be impossible or financially unreasonable to move.

Basically, you will need to do a major overhaul of the home and it can cost you more money over a longer time. The only way for you to recover these expenses is by increasing the price of your home during resell. Higher pricing, in turn, will take you longer days on market to find a homebuyer prospect.

Avoid bad floor plans by knowing what to look for when touring a house. Here are some of the most common bad layout designs:

  1. Inside stairway facing the entrance
    Welcoming guests with a stairway can be off-putting and confrontational. Ideal stairways are wide, curved, well lit, and are off to the side.

  2. Hallway facing the entrance
    Long, narrow, dark hallways are cause negative impressions, especially if they see the entire hallway right from the entryway.

  3. No buffer for bedrooms
    Bedroom doors must not directly open to dining or living areas for privacy. Noise coming from adjacent rooms also cause disturbance. Placing bedrooms between closets or bathrooms will provide a good source of sound buffer.

  4. Poorly located bathrooms
    The only thing worse than seeing a long dark hallway upon entrance is looking at a full view of a toilet at the end. A good floor plan has bathrooms strategically located for privacy and convenience. That’s why a bathroom accessible only by passing through a utility or laundry room is also unappealing.

  5. No natural lighting
    Natural lighting provides a comfortable and pleasant vibe to your home. A window placed toward one edge brings in natural light and reflects the light off to the adjacent wall. A good layout sets windows on different walls to allow more light to come in and circulate.

The post Buying A Houston Home? Avoid These 9 Kisses Of Death For Resale. appeared first on Houston Properties.

This post first appeared on Houston Real Estate Blog / News | Paige, please read the originial post: here

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